Hollywood Entertainment Continues Clawing Back to Firmer Ground in Second Quarter

Hollywood Entertainment Corp.,owner of 1,800 Hollywood Video stores, reported a mild increase in same-store sales for the second quarter endedJune 30, 2001, prompting an upward revision of third and fourth quarter sale-store sales and revenue goals.

Hollywood reported consolidated revenue of $325.1 million for the secondquarter ended June 30, 2001, as compared to $310.7 million (excluding Reel.com) last year, an increase of 5%.

Total same-store sales and same-store rental revenues increased 1% for the second quarter.

Diluted earnings per share for the quarter were $0.13, exceeding expectations, as compared to a reported net loss per diluted share of $1.37 last year.

The company's EBITDAfor the second quarter was $41.1 million.

During the quarter the companyopened one new store and closed two bringing the total stores opened at the end of the quarter to 1,815 superstores in 47 states and the District of Columbia.

The company said its net income for the second quarter benefited as the result of the recognition of net operating loss carried forward arising primarily from the charges recorded by the company during fiscal year 2000, the tax benefit of which has previously been unrecognized.

Adjusting net income to give pro forma effect for a normalized effective tax rate, pro forma net income for the quarter was $4.1 million or $0.08 per diluted share.

Commented Mark Wattles, chairman, c.e.o. and founder of Hollywood EntertainmentCorp.: "We are pleased with our same-store sales growth for the second quarter considering the difficult comparison to last year. Last year's second-quarter new releases included two of the biggest titles of all time: Star Wars -- The Phantom Menace and The Sixth Sense.

"We have just begun to see the benefits from the changes and additions we have made to our management team over the last year and the corresponding improvement to our operations. Our same-store sales exceeded both theindustry and our major competitors.

"Additionally," Wattles said, "second quarter compsprogressively got better through the quarter with the same trend continuing into the third quarter."

For the six months ended June 30, 2001, total revenues were $667.3 million as compared to $631.7 for the six months last year (excluding Reel.com).

Diluted earnings per share for the six months were $0.21 as compared to a reported six-month loss per share of $1.63 last year. Pro forma net income (giving effect to a normalized tax rate) for the six-month period ended June 30, 2001, was $6.3 million or $.13 per diluted share.

The company has increased its targeted revenues for the current year to be in the range of $1.335 billion and $1.345 billion. These revenuetargets for the year are based upon assumed same-store sales increases in the 4% to 5% range for the third and fourth quarters versus the previous target of 2%. In addition, the company is increasing its targets for pro forma net income per diluted share to be in the range of $0.08 to $0.10 for the third quarter and $0.24 to $0.26 for the fourth quarter.

As a result of these new targets, the company expects pro forma net income per diluted share for fiscalyear 2001 to be in the range of $0.45 to $0.49 per share.

In addition, for the fiscal year ended 2002, the company believes it can continue to grow total same-store revenues in the 3% to 4% range, therefore assuming no new stores growth, and that it can achieve pro forma net income per share in therange of $.95 to $1.10.